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costco Holiday quarter revenue on Thursday fell short of Wall Street expectations despite an annual increase in sales and strong e-commerce growth.
The retailer’s shares fell about 4% in after-hours trading. The company’s shares hit a new 52-week high earlier in the day.
This is Costco’s report Second quarter of fiscal year 2024 Compared to Wall Street expectations, according to a survey of analysts by LSEG (formerly Refinitiv):
- Earnings per share: $3.92, $3.62 expected
- Revenue: $58.44 billion, $59.16 billion expected
Costco’s net income rose to $1.74 billion, or $3.92 a share, in the three months ended Feb. 18, compared with $1.47 billion, or $3.30 a share, a year earlier.
Costco’s revenue this quarter increased from $55.27 billion in the same period last year.
The company’s comparable sales increased by 5.6% annually, and the United States grew by 4.3%. Excluding changes in natural gas prices and foreign exchange, the overall growth of this indicator was 5.8%, and the United States grew by 4.8%.
Sales of food and groceries, including snack foods and beverages, grew by mid-single digits in the quarter, Chief Financial Officer Richard Galanti said on the company’s earnings call. Fresh foods were up by high single digits and non-food items were up by mid-single digits.
Ancillary businesses, which include more service-related purchases such as travel, grew by low single digits, he said. Costco’s food courts, pharmacies and optical centers were among the best performers of the season, while gas prices also fell in the low single digits as per-gallon prices fell.
More shoppers are coming to Costco, and they’re spending more money on their shopping trips this quarter. Galanti said on the earnings call that global traffic grew by 5.3% and U.S. traffic grew by 4.3%. Average ticket prices increased in the U.S. and globally, he said.
Galanti said inflation this quarter was about the same as last year, allowing retailers to lower prices on certain items. For example, he said, the price of reading glasses dropped from $18.99 to $16.99, and the price of 48 Kirkland Signature batteries dropped from $17.99 to $15.99. He said that the inflation rate last quarter was as high as 1% compared with the same period last year.
Prices for many new items in categories such as sporting goods and lawn and garden will also be lower than a year ago due to lower shipping and merchandise costs, Galanti said.
Costco has 875 warehouses, 603 of which are in the United States and Puerto Rico. It also has clubs in about a dozen other countries, including Canada, Mexico, Japan and China.
In the second quarter, Costco opened 4 new stores, including 3 in the United States and 1 in Shenzhen, China. Galanti said this marks its sixth club in China. Two of the three new locations in the U.S. are Costco business centers designed specifically for small business owners such as restaurant operators.
As of Thursday’s close, Costco’s stock price has risen nearly 19%% since the beginning of the year. The stock hit a 52-week high of $787.08 earlier in the day and closed at $785.59, giving the company a market capitalization of nearly $350 billion.
Digital growth
Galanti said Thursday that Costco has made changes to its website to improve the experience for online shoppers. It has also adapted its business to become more digital.
E-commerce sales increased 18.4% year-over-year this quarter.
For example, Costco launched a new mobile app homepage in February that loaded in less than two seconds, compared with the previous eight seconds — a move he said was critical because about 60% of the company’s e-commerce business is transparent. This is done through its mobile app and mobile browser.
The company launched Apple Pay to all online members last week. Costco Next is a seller platform that allows members to purchase items directly from some of the retailer’s vendors at discounted prices. He said a variety of goods were sold at the market, including electronics, bicycles and clothing.
In recent months, Costco has done a better job of communicating the value of its merchandise online, especially big-ticket items like appliances, mattresses and tires, and e-commerce sales have grown, he said.
Galanti said app downloads increased by 2.8 million this quarter and now total about 33 million.
membership fee
Costco membership sign-ups increase Galanti said that’s because the company has cracked down on membership sharing. During the pandemic, the Warehouse Club noticed more people using their parents’ membership cards and let it go, he said. Then, as self-checkouts became more common at clubs, membership sharing grew, he said.
Costco is now requiring more checks on loyalty cards to make sure they match the shopper, he said.
“Did we get some new registrations out of this? Absolutely,” he said. “Relative to 60 or 70 million members, it doesn’t mean much, but it’s a fairer and more correct approach.”
But he said Costco’s membership-sharing problem isn’t as big as that of Netflix, another company that’s been hit. Costco members have a harder time sharing than Netflix because they still need to have a physical card when they walk in, he said.
Investors have been waiting for Costco to raise membership fees for more than a year. The company typically increases annual fees approximately every 5.5 years. The last fee increase was in June 2017.
But Galanti said the company has not yet raised fees. But he added, “It’s when, not if.”
The long-time chief financial officer, who is retiring, has chaired all but one of Costco’s earnings calls since it went public in 1985. He joked on a conference call Thursday that the fee hike would be a task for his successor, former Kroger CFO Gary Millerchip. He took over in mid-March.
“I’ve been joking with Gary, he’s going to be responsible for this, not me,” Galanti said.
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